One in four borrowers are paying over 6.5 per cent on their mortgage

Rising interest rates have caught borrowers off guard, with one-in-four now paying over 6.5 per cent interest on their mortgage.

Research from Canster found that 24 per cent of owner-occupiers are paying an “eye-watering” rate above 6.5 per cent, which is 1.81 per cent above the lowest rate currently available.

Canstar’s finance expert, Steve Mickenbecker said there are options for homeowners who are struggling with high borrowing costs.

“For borrowers still in sound enough financial shape to refinance, an interest rate above 6.50 per cent should be blaring alarm bells and sending them off to a bank for a better deal,” Mr Mickenbecker said.

“There are 57 variable rate loans at present with rates under 5 per cent and while refinancing to the lowest rate loan in the market may not always be possible, there’s still a wide range of loans offering big savings.”

Borrowers with a $500,000 mortgage over 30 years at 6.5 per cent are paying $570 or more each month than they had to according to Mr Mickenbecker.

Mr Mickenbecker said borrowers on very high interest rate loans, should compare their options.

“The case for refinancing is even more compelling for borrowers with high-rate loans taken out many years ago that are now breaching 8 per cent, with savings potentially reaching close to $1150 a month on a $500,000 loan, which is a severe penalty for complacency,” he said.

“Even for borrowers with rates in the mid-range of 6.01 per cent to 6.50 per cent, the savings are still a very substantial $471 per month. 

“Try saving that on any other household bill. 

“For borrowers, the home loan is the biggest opportunity for savings to help make ends meet.”

According to Mr Mickenbecker, there could still be more interest rate pain ahead for borrowers if the Reserve Bank of Australia follows through with more predicted hikes.

Two of the big four banks are still expecting the cash rate to increase by a further 0.50 per cent to reach a peak of 4.1 per cent. 

This would add an extra $166 per month to repayments on a $500,000 loan over 30 years and see repayments rise by 58 per cent from $2103 in April 2022 to reach $3,320 per month according to Mr Mickenbecker.

“Refinancing to a new lender has been at record highs over the past few months, but the majority of borrowers are yet to make the move since rates started rising last year and should not be sitting on their hands,” he said. 

“The longer people have held a loan without renegotiating with their lender, the higher the interest rate they are paying and the more savings they are leaving on the table. 

“At the top end of rates, the repayment penalty for complacency is just frightening.

“If borrowers can cut 2 per cent from their loan by refinancing, they are clawing back more than half of the Reserve Bank interest rate increases of the past year.”

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Rowan Crosby

Rowan Crosby is a senior journalist at Elite Agent specialising in finance and real estate.

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